Perhaps the prospect of making a financial plan for your future, detailing your goals and how much you want to earn, save and spend each year for the next 10+ years is a little overwhelming. Maybe you have tried this in the past and it just doesn’t seem to work out. You’re not alone. Money can be an anxious trigger for many of us, so let’s take a step back and focus on a couple of things to help you make a purposeful start to your finances in 2023.
The Budget – this is not report card, it’s not an exam, it’s not a judgement on your money decisions. This is simply a picture of money that comes in and goes out.
First Step – list your income. Your wage after tax, any income that you receive such as interest on money saved, dividends from shares, rent from property. Perhaps you have a couple of jobs, or a weekend job, or even a hobby that earns you a few extra bucks. Your income after you have subtracted tax is called your “net income”.
Next Step – where does the money go? And where should it go?
Categorise your expenses into a few areas:
- NEEDS – 50% of your net income to pay for your basic living expenses – the essentials. Include your shelter (rent or mortgage), your utilities. Also your food, health, groceries, transport. These are basic needs that you really can’t go without. If these items are a long way above 50% of your net income, then you may wish to reassess some of your spending so that you have space in your budget for your wants and your savings. Alternatively, you can look at your income and consider ways to increase this. Perhaps a longer term plan is required if you need to study or retrain.
- WANTS – 30% of your net income to go towards some of the things that make you tick. What gets you excited? Is it playing sports, going to concerts, eating out with friends or just a couple of subscriptions? Maybe it’s a holiday – a camping trip or an overseas adventure. Perhaps it’s just having a night off cooking once a week and enjoying some takeout or cafes. Being generous is a great character trait and certainly a fulfilling use of your money – leave some room in this category for other people’s wants and how you might be able to help them. By placing a 30% limit on your “wants” it will help you to prioritise what are the important areas that you are happy to spend a bit more money on. Perhaps your Needs are closer to 60% of your net income. It might be time to pare back the wants for now so that you can still save towards your future.
- SAVINGS – the final 20%. After all of the effort you put into your career, make sure you are building something for your future. Start off with saving in your emergency fund so you don’t get caught off guard by unexpected expenses. Once you have a reasonable cash savings set aside (and maintained), then you can look towards investing. You may wish to seek advice in this area so that your investing decisions are aligned with your longer term goals.
Now that you have a picture of your money for 2023, make sure that you track it. Send your 20% savings automatically into a separate savings area. Use your online banking budget tools to see where you have spent money in the last month. Taking some time to acknowledge money in and money out will help you to build healthy habits and build confidence about how you manage your money.
Your money structure is taking shape. Where to from here? Create some unique goals for you – make them achievable, break them down into smaller targets. Share your goals and your money plan with someone that you trust. Someone whose values align with yours, and who has a good track record with wise decisions about money. Not necessarily the richest person you know. But someone who shares your perspective and that you can trust with this area of your life.
Enjoy this opportunity and may 2023 be the start of a new, prosperous and fulfilling journey for you and your family.
Author: Tim Cotton & Whitelight Financial Services
You can hear more from Tim in the conversation ‘Investing in Your Health, Wealth & Relationships‘
General Advice Warning
The advice provided to you is general advice only and has been prepared without taking into account your objectives, financial situation or needs. Therefore, you should consider the appropriateness of the advice, in light of those factors, before acting on the advice.
Tim Cotton & Whitelight Financial Services Pty Ltd ABN 41 609 913 340 are Authorised Representatives of Lifespan Financial Planning Pty Ltd ABN 23 065 921 735 AFSL 229892